In this month’s update: important information from Costa Rica, the United Kingdom, Argentina, Japan, the United States, and Ireland.
Argentina’s $2 million USD Limit Removed
As of August 8, 2016 there is no monthly limit to access the local exchange market for the purposes of acquiring foreign currency. However, access to the local exchange market is subject to Argentine Central Bank’s FX regulation (e.g. execution of an FX contract in accordance with applicable regulation).
In order to conduct a foreign fund transfer from Argentina, the following documents must be completed and executed:
- A currency exchange slip provided by the bank assisting with the transfer.
- A sworn statement indicating the origin of the funds used to purchase the foreign currency or assets.
The bank assisting with the transfer may ask for other administrative forms to be completed and executed.
Funds must be transferred to a foreign account opened in the name of the individual/local entity, residing in countries or jurisdictions that are considered as cooperative for fiscal transparency purposes under Section 1 of Executive Decree No. 589/13, or in countries or jurisdictions where the Recommendations of the Financial Action Task Force are followed or sufficiently followed. The identification of the foreign entity where the resident’s account has been created and the account number must be recorded in the applicable FX contract.
Social Security on Equity Awards
Social security obligations on equity awards in Costa Rica are subject to frequent change due to the lack of regulation.
In recent years, companies were advised to take a conservative approach and to pay/withhold employer and employee social security on equity awards, even if the local company reimbursed the parent company for the cost of the awards. This falls in line with the tax authority’s income tax reporting and withholding obligations.
The Costa Rican Social Security Agency (CRSS) recently changed its position such that if the local company is benefiting from a corporate tax deduction for the cost of the awards, social security will be due on the equity award income.
In light of the recent changes, companies may wish to reconsider their approach to withholding and payment of social security on equity awards, keeping in mind that the CRSS has not made any formal regulations and may change its approach in the future.
Any income received by an employee through a share incentive plan will be treated as earnings and is thus subject to primary and secondary Class 1 National Insurance Contributions (NICs), otherwise known as employer and employee contributions. The responsibility lies with the employer to withhold the employee’s contribution and pay NICs to HM Revenue and Customs (HMRC) as well as paying employer contributions.
There is a special rule that employers can take advantage of in order to transfer their NICs cost to the employee depending on the type of share related earning the employee received. This can be done by either a NIC agreement or a NIC election.
A “NIC agreement” is an informal agreement between employee and employer. Alternatively, the employee and employer can jointly enter into a “NIC election” which is a more formal arrangement. The NIC election method provides more protection for employers as it legally transfers the liability of NICs costs to the employee and must be approved by the HMRC.
Following a recent consultation, the government will take no further action and HMRC has confirmed they will keep the NIC elections process in place.
Reporting Obligations in 2016 Tax Reform Proposal
The National Tax Agency in Japan has released the 2016 Tax Reform Proposal with a change in employer reporting obligations in relation to employee share incentive plans.
It requires the employer report on a broader group of employees and will effect shares received after January 1, 2016. Previously, employers had to file reports for the following types of employees:
- Those who are Japanese residents
- Those who are actively employed by a local Japanese company at the time of receiving their shares
The reform will now require employers to include non-residents and former employees in their reporting.
Monthly Social Security and Supplemental Security Income (SSI) benefits will increase by 0.3%. This is referred to as a Cost of Living Allowance which is dependent on the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics.
As a result, the maximum amount of earnings subject to Social Security Tax will also increase in 2017 to $127,200, from $118,500 in 2016. The Social Security withholding rate will remain at 6.2%, however with the new wage cap, the maximum withholding for Social Security will increase to $7,886.40.
Universal Social Charge (USC)
The Minister of Finance, Michael Noonan, Teachta Dála (TD) delivered Budget 2017 on October 11, 2016. The budget includes measures to improve Ireland’s international competitiveness as well as tax measures to cut Universal Social Charge.
The lower USC rates of 1%, 3%, and 5.5% will all be reduced by 0.5% as of January 1, 2017, and the higher USC rate of 8% will remain in place. The marginal rate for employees with incomes of up to €70,044 will be reduced to 49%.
USC Band USC Rate
First €12,012 0.5%
Next €6,760 2.5%
Next €51,272 5%